How To Fairly Value Your Used Car

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Griffin, Keith. "How To Fairly Value Your Used Car." ThoughtCo, May. 9, 2017, thoughtco.com/how-to-fairly-value-your-used-car-3308570. Griffin, Keith. (2017, May 9). How To Fairly Value Your Used Car. Retrieved from https://www.thoughtco.com/how-to-fairly-value-your-used-car-3308570 Griffin, Keith. "How To Fairly Value Your Used Car." ThoughtCo. https://www.thoughtco.com/how-to-fairly-value-your-used-car-3308570 (accessed September 24, 2017).
Woman looking at car for sale
Woman looking at car for sale. JGI/Jamie Grill/Getty Images
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How To Fairly Value Your Used Car

It’s exciting buying a car, new or used, but it can be stressful getting rid of your current one. That’s why most people take the path of least resistance and trade their used cars in. They want to avoid the hassle of selling it on their own. Regardless of your decision, it’s important you know the true value of your car before entering into any negotiations over its price.

There are three values for any used car: the trade-in price, which is always the lowest and is what a dealer will pay you for your vehicle; the private party price, which is what two individual buyers will negotiate; and, the retail price, which is what a dealer hopes to sell a used car for to another buyer. We’re going to deal with the first two values (trade-in and private party) because we’re mostly dealing with you selling your car.

However, if you’re concerned with what you’re paying retail, jump ahead to Setting the Retail Price. It will explain how much you can expect to pay retail when buying a used car.

The most important step in this whole process, though, is determining your car’s condition. It’s a subjective step that requires you to be as objective as possible. You can set an accurate value for your used car without being honest about its actual condition.

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Determining the Right Value for Your Used Car

It's a tricky thing pricing a car for sale. Price it too low and you cheat yourself out of money to pay for your new car. Price it too high -- either from an emotional attachment or bad research -- and you could be stuck making payments on your new and used cars at the same time. That hurts the pocketbook.

There are two websites that can help you determine a fair value for your car: ​kbb.com and Edmunds.com. Both will tell you the car's trade-in worth, its private sale value and how much the dealer could expect to sell it for. That last price really demonstrates the absolute highest value you expect to get for the car. No savvy car buyer will ever pay that price to a private individual.

Avoid competitive pricing with newspaper and online classifieds. Some people recommend this, but it can be a waste of time. You have no way of knowing the condition of those cars, regardless of what the ads claim, compared to your vehicle. You're much better off running your car's value through these two competing websites, which are going to be more objective.

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Defining Your Car’s Condition - Excellent & Good

Before you can determine your car's value, you have to define its condition. Be honest with yourself and follow these guidelines. They really give you an objective view of your car's condition.

To further help your decision, have a friend inspect your car as if he or she was going to buy it. Use my used car inspection checklist as a guideline.

No sense reinventing the wheel. I'm going to keep my rating simple and use stars. On this page, we'll examine used cars in excellent and good condition. The next page looks at average, rough and damaged used cars.

★★★★★

This vehicle would be in exceptional shape in all aspects. The engine runs well and its maintenance records are complete. The tires match and have lots of tread on them with no uneven wear patterns. The inside and outside are free of damage. The car's paint has no flaws and is free of excessive chips and dings. The title is clear and the car can pass all required local and state inspections. According to kbb.com, only 5% of all used cars fall into this category. Is your used car really better than 95% of its peers?

★★★★

This ranking applies to cars that show wear consistent with their age. There are no major mechanical or cosmetic problems. The paint still looks good, but possibly has some scratches or dings. Some minor touch up might be needed. The interior has minimal wear on the seats and carpet. The tires are in good shape and have some life left to them. A four-star car ideally has its maintenance records available, a clean title, and can pass inspection.

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Defining Your Car’s Condition - Average, Rough or Damaged?

It's tough to admit your used car might be in one of these categories -- but you have, to be honest with yourself. Look at these definitions and see if your used car belongs to them.

★★★

A car with this rating might have a few problems that may require a small investment to fix. Maybe the exterior paint has faded. There could be lots of scratches and dings – even a small dent or two. The interior dash and seats may have a worn, faded look to them. The tires are probably past their prime but still safe. Maintenance records probably don’t exist but this car has a clean title and can pass state and local inspections.

★★

This is a vehicle that has been through some hard knocks. It has several mechanical problems – or has had several repaired recently. Its exterior and interior may be in dire need of reconditioning in terms of faded or missing paint. There are dents and some signs of rust. Tires most likely need to be replaced. It has a clean title but might fail a state or local inspection on its first try.

To paraphrase Ralph Nader, this car is unsafe at any speed. It has substantial mechanical problems or body damage that make it inoperable. The exterior and interior show signs of wear and damage. The tires are bald and unsafe to operate. Vehicles in this category also have branded titles (salvage, flood, frame damage, etc.) and will need major, costly repairs to pass inspection.

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Price Difference

You might be tempted to fudge your prices a little bit when you see the differences in what you can charge based on condition. Don't do it. Fraudulent behavior can have serious complications and destroy any negotiation advantages.

Let’s look at a 2004 Chevy Malibu with 50,000 miles on the odometer to show what the price difference can be depending on the car’s condition. (Information supplied by Edmunds.com.)

★★★★★: $5706

★★★★: $5322

★★★: $4468

★★: $3804

★: Take the three-star price and subtract the cost of getting it back to that shape to arrive at a damaged price, according to Edmunds.

As you can see, there is a 50% price difference from one star to five stars with the greatest percentage jump, 19%, between three stars and four stars. (That points to keeping your car in good shape from day one.)

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How To Value Your Trade-In

There's no exact science to setting a used car value. While objective data can determine a car's value, even websites have some subjective tuning in their prices, which explains why they suggest different values.

For example, when this article was being written, a clean 2002 Dodge Neon with a five-speed manual transmission and a four-cylinder engine with 50,000 miles on the odometer has a trade-in value of $3942, according to Edmunds.com. At kbb.com, which is the online arm of Kelley Blue Book, the value is $4195. Split the difference and you arrive at a trade-in value of $4068.

Under this example, see what number the dealer offers. Settle for anything between $4068 and $4195. Make the dealer prove any number below $4000 -- or any number approximately 105% of the lowest two numbers you arrive at.

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Setting a Private Party Price

The private party price is what you hope to be able to sell your used car for. A private party sale, if your used car is valued correctly, is always going to get you more than what a dealer offers you in trade-in. However, you do have to factor in the amount of time involved in selling a used car on your own.

The private party price for a 2002 Dodge Neon with a five-speed manual transmission and a four-cylinder engine with 50,000 miles on the odometer, according to Edmunds.com, is $4,845, or 22% above its trade-in value. Over at kbb.com, its suggested price is $5,660; that's 35% above its suggested trade-in price. Again, split the difference and mark your price 28% above the suggested average trade-in value of $4,068. That gives you a price of $5,207.

Once you've classified your car and come up with a price, add at least 10% to it. This is going to be your wiggle room. Now that you know what your car is worth, allow yourself some space to be negotiated down on the price. The consumer is going to be the ultimate arbiter of your car's value. Use these guidelines just to get the process started -- to your advantage.

Remember to approach any negotiation with as much information as possible. Always presume the other side is as well prepared as you are if not more so.

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Setting a Retail Price

The retail price is what you can expect to pay for a used car from a dealer. This price is going to be for used cars that are not certified pre-owned. You'll pay a higher premium for those.

This is probably the easiest step of all. The private party price as this article is being written for a 2002 Dodge Neon with a five-speed manual transmission and a four-cylinder engine with 50,000 miles on the odometer, according to Edmunds.com, is $4,845, while kbb.com says it's worth $5,660. If you split the difference, you arrive at a suggested private party price of $5,207.

Determine what you're willing to pay retail by adding 20% to the private party price. In this case, it's about $6,250. You're paying for all the work the dealer has put into prepping the car for re-sale. Frankly, it's work you would probably have to do if buying a used car from a private seller.

A certified pre-owned vehicle is going to cost you at least 5-10% more. It can be worth it depending on the warranty offered. Remember that certified pre-owned vehicles are only worth a premium price when certified by the manufacturer. Otherwise, the certification is meaningless as explained in my section on understanding certified pre-owned used cars.